How democracy causes growth: Evidence from Indonesia

Source: VoxDev

Authors of this article (2022), Baafra Abeberese, A. et al describe their study and its results as follows:

“We study how democratisation affects firm productivity — a critical micro-driver of economic growth. We do so in the context of Indonesia, which had been under the dictatorial rule of Soeharto for three decades, until the unexpected collapse of his regime in 1998. Using the exogenous timing of when each district in the country transitioned to a democracy, we estimate the causal effect of democratisation on firm productivity. We combine data on the timing of democratisation with an annual census of manufacturing firms over two decades to analyse the impact of democratisation on firms using an event study design. Our findings suggest that democratic leaders are less likely to impose socially inefficient regulations or engage in rent-seeking and, hence, enhance firm productivity.”

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Labels: Inclusive Growth


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